Deal or no deal

New guidelines aim to make the cost of buying a car more transparent. ANDREW HEASLEY reports.

Deal or no deal

24 August 2010

Everyone loves a bargain but nobody likes to be taken for a sucker. Yet it's hard not to feel you've been taken for one if you've been lured into a car yard or showroom by a low price, only to be disappointed to find the car's "just been sold" or costs thousands of dollars more to match the one pictured, or there's the old "plus, plus, plus..." to put the car on the road.

Buying a TV or washing machine is a fairly straightforward process, with advertised prices largely matching the out-of-pocket expense, but as car buyers will know, when it comes to four wheels it's not that simple. There's frequently a disparity between what you think you're up for and what you pay when you sign the contract. Sometimes the financial surprises come long after signing.

Beyond a car's recommended retail price (including the Federal Government's GST amount), there's a long list of extra costs such as the State Government's stamp duty, the dealer's "delivery fees", and the on-road costs of VicRoad's registration and the Transport Accident Commission's compulsory third-party insurance. Add in complex financing and leasing arrangements, generally a mix of up-front, recurring and end payments, encompassed in obfuscating legalese, and it can be a quagmire for the unwary.

Meantime, car ads vigorously compete for consumers' attentions, some seeking to lure buyers with discounted prices, some with all-in drive-away prices, others with stunning headline prices, but with the devil in the asterisked fine print.

It's an issue that the country's competition watchdog, the Australian Competition and Consumer Commission, began reviewing two years ago, taking in the views of car makers, dealers, marketeers and consumer advocacy groups to frame new guidelines governing how new- and used-car prices are advertised. The guidelines, finalised in November but just launched publicly last week, are aimed at making the costs in car buying more apparent to consumers and eradicating misleading and deceptive conduct by the car industry.

"Always in advertising, the representation to the public of price - a true and honest representation - is very important," said ACCC commissioner John Martin, who headed the review. The result, the Automotive Advertising Guidelines - price advertising in the motor vehicle industry, sets rules governing the way prices are presented.

Mr Martin warns that a headline price's asterisk and fine print may not be enough to satisfy the new guidelines.

In the guidelines' sights are the way prices are represented in advertisements, disclaimers, discounts including "below cost" claims, photos used in ads, so-called "bait advertising" and cash rebates.

Be warned, though: even with advertisements that comply with the new code, there's still plenty of guesswork involved for conscientious consumers who want to compare deals or establish what it will cost in full to drive out of the showroom - let alone figure how much negotiating room they have on their side.

The guidelines aren't law, the ACCC says. Rather, they're plain-English recommendations based on the commission's interpretations of court rulings of what actions constitute misleading or deceptive conduct under the Trade Practices Act. They've been boiled down to how car prices in ads should be presented to consumers so as to be clear, unambiguous and accurate.

The advertised prices must state the total price required to take delivery of the vehicle. That includes "all mandatory components" of the price that can be quantified; that is, stamp duty and dealer delivery costs. What doesn't have to be specified, the ACCC says, are the "on-road costs": registration and compulsory third-party insurance.

"The ACCC does not see ... (on road costs) ... as mandatory components," it says.

It's a somewhat curious stance - after all, how many people buy a car without intending to register it or drive it on the road? For the vast majority who will buy a car to drive on the roads, don't they need to know at a glance what it's going to cost them, in full?

"It probably would be best practice, but it's not something we can require under the Trade Practices Act," Mr Martin says.

The ACCC says registration and compulsory third-party insurance payments aren't mandatory to buy a vehicle, only to operate it on the road.

However, the insurance levy charged varies according to whether your suburb is classified low, medium or high risk - making it practically impossible to generalise and be precise in ads.

The minimum requirement for advertising a car's price to satisfy the new guidelines (and therefore likely to be the most widely adopted practice) is for ads to include the recommended retail price of the car and a separate sum representing the combined dealer delivery charge and stamp duty. There also needs to be a qualifying statement, "Other on-road costs additional" - referring to, but not quantifying, the registration and compulsory third-party insurance.

However, by permitting the combining of the non-negotiable statutory stamp duty fee with the oft-negotiable "dealer delivery fee" in a single aggregate, consumers are left guessing how much each is, without tracking down the applicable stamp duty scales and doing the maths. Without knowing how much of extra cost the dealer delivery fee represents, you'd be unsure how much negotiating room you have.

"We'd be going beyond the Trade Practices Act to say that you'd have to specify the (dealer) delivery charge," Mr Martin says.

The ACCC prefers dealers, if they're advertising a car's price, to adopt "drive away, no more to pay" deals: a single all-in dollar amount that includes registration and compulsory third-party insurance. But hold on - aren't these the very fees that weren't "mandatory"?

It's "best practice", the ACCC says, as "consumers should expect to pay no more than the advertised price".

What the ACCC warns is likely to contravene the Trade Practices Act is an advertisement that lists the base price of the car plus the separate dollar amounts of GST, dealer delivery and administration fees and stamp duty.

It seems a strange outcome. Isn't that exactly what buyers want to know - that is, where they're being stung, and by how much? In answer to that, the ACCC says the courts have held such a price treatment to be a complex or ambiguous calculation because it doesn't give the total of all mandatory charges or specify the cash price of the vehicle. "What the courts have said is that the price components must not be difficult to calculate, they must not be ambiguous," Mr Martin says.

He adds: "In terms of consumer interest, it's always tricky to know which way to go. If you insist on everybody listing all these things, the judge tells us that's complex. And is it fair on the industry to have to list all this stuff? As long as people know what they're going to pay when they walk out the door in terms of the headline figure, I would have thought that's the main thing."

Consumers need to be alert, too, to who's actually advertising the price: the manufacturer or a dealer. The new guidelines say manufacturers can recommend retail prices, but an advertisement may be misleading or deceptive if it conveys the impression a car can be bought from a dealer at the RRP. Manufacturers' ads need to state that the price excludes other mandatory charges that may vary from trader to trader, and that the cars can't be bought directly from the factory.

Where the ACCC warns the car industry that its ads could run into illegal price-fixing contraventions are those ads that are jointly done by the manufacturer and a group of dealers.

If the advertised price has the effect, or likely effect, of controlling or maintaining prices by the parties agreeing to an artificially high advertised price, it's likely to be deemed anti-competitive. Why? Because the competition laws require that the price advertised should be the maximum price the vehicle is to be sold at, not the minimum. Group ads prominently stating the advertised price is negotiable may avoid accusations of price fixing.

Then there's the matter of the ever-present price asterisk and its bedfellow, the fine print. The ACCC warns that a disclaimer or qualification in the fine print is not to be used to correct a misleading impression created by the prominent parts in an ad. And, as the commission points out, the test of what's misleading is the impression created in the mind of the consumers, not what the dealer or trader thinks.

"The general rule is that disclaimers must be prominent, in close proximity to the main representation and as clear and comprehensive as possible," Mr Martin says.

The adage "the smaller the print, the bigger the reason to read it" still rings true, with the guidelines unable to stipulate how big the fine prints needs to be.

"The guide cannot specify a minimum font size because the relative legibility of fine print will vary with the size of the newspaper, billboard, television, cinema or internet advertisement," the ACCC says. "The question of whether fine print is sufficiently prominent is a matter of judgement and depends on the size, location and detail of the fine print in relation to the advertisement."

Pictures of cars should closely match the actual cars being sold, the guidelines say, and catch-alls such as "picture for illustrative purposes only" don't avoid a misleading situation if the car for sale doesn't have the same attributes as the car pictured.

For advertised discounted prices not to be misleading and deceptive, the ACCC says, the discount should be measured against a recent price at which the car was available for sale for a reasonable period of time before the discount.

"The price that you're discounting off can't be something you've cooked up and artificially inflated," Mr Martin says.

The practice of bait advertising, in which consumers are lured to a car yard by cheap prices but find that advertised vehicle is not available and are encouraged to buy a more expensive car, breaches the Trade Practices Act. Mr Martin says the ACCC understands that not all cars will immediately be in stock, but the guideline is meant to stem deceptive practices.

The ACCC says ads for second-hand cars should state the number available at the price.

Ads for imported cars pictured with the disclaimer "not the Australian model" may be misleading if the pictured car, with an advertised RRP, differs substantially in quality or external features from the cars for sale locally.

With cash-back offers, in which a manufacturer or distributor offers a cash rebate for buying a car, the price quoted cannot be net of the rebate unless the consumer receives the rebate at the time the vehicle is paid for, the guidelines say.

Car buyers intending to finance their vehicles by way of hire purchase, lease or other loan arrangement should have the terms and conditions adequately explained to them in the ads in simple-to-understand language, the ACCC says.

The watchdog warns that terms such as "balloon payment", "residual, minimum buy-back" and "TAP" (To Approved Purchasers) are jargon that may confuse consumers, and need to be adequately explained.

To comply with the guidelines, the finance offer should state the interest rate per annum being charged, the deposit requirements, what the periodic payments are, the duration of the finance contract, what fees and charges are payable, final payments, when the offer ends, the total the consumer will pay over the life of the contract and the car's cash price, that is, the total amount required to buy the car immediately for cash.

Lease offers need to state the deposit required, the duration, periodic and final payments, fees and charges and the date the offer ends. Finance and lease offers need to comply with the Uniform Consumer Credit Code's disclosure requirements.

So who's going to ensure the car industry adheres to the new guidelines?

Mr Martin says the ACCC acts on complaints, and that although the ACCC won't be using jackboots to enforce its new code straightaway, it will be keeping an eye on what's in the ads now the guidelines have been launched.

"We'll be getting out to all the states," Mr Martin says, to sell the new rules. "They'll get the message if we take some enforcement action, and that's always on the cards."

What the experts say

The Lawyer

We've been recommending to our (automotive) clients basically what's in the guidelines now for a fair while. The guidelines encapsulate what the law has been for a fair while, it's just a lot of people out there don't strictly comply with the existing law.

Being clear about dealer delivery charges, which are a mandatory requirement under the Motor Car Traders Act anyway, which most people ignore, we've been saying you've got to do that. We've been saying disclaimers have to be prominent, (and) should ideally be spelling out stamp duty costs.

The real change will be that you'll hopefully see the standard of advertising will be consistent between dealers, at the dealer level, and factories, at the factory level.

The fact that the size of disclaimers is being highlighted in the guidelines, I think that's something the ACCC may start taking more notice of. It might make some of the ads look a bit different - should be bigger. Presumably the one-line ads you often see in the paper from dealers, I'd imagine they're going to have to change, as well. They're going to have to spell it out completely or just put the higher price.

The real problem is the confusion or difficulty caused by the different prices that'll have to be advertised by dealers as opposed to the factory (because of the stamp duty and dealer delivery costs) ... for exactly the same car. If you comply with the guidelines as they are now, that will be the result ... It would be a brave person who continued to advertise and not comply with the guidelines for any extended period of time.

Peter George, partner and head of the automotive practice group, Minter Ellison

The Marketer

Any sort of clarity you can get in pricing is great. Any move to streamline the approach is a help to consumers. Ultimately, most consumers just care about what the bottom line is - (they) don't really care about the component costs of it. I don't think people care where the money goes, they're just worried about how much of it is going to go from their wallet.

There has been a move to the "no-more-to-pay" drive-away pricing in recent years. Everyone knows that components of that price are stamp duty, dealer delivery fees; you can always ask what the breakdown is.

The more complicated pricing is, the less competitive it is; you've got people who can't draw comparisons between manufacturers. Telecommunications is an excellent example: you're never quite sure if you'll get a better deal with another telephone company because there are so many different pricing plans, points, additions and deals. How do you compare? For consumers, inertia sets in, you can't be bothered learning about other products, you stay with what you know, you tend to be less willing to compare.

The simpler the price, the better for consumers. People ultimately want to know what it's going to cost them. Simpler, cleaner, clearer messages are what people grab.

Con Stavros, senior marketing lecturer, RMIT University

What do you think? Do you prefer a simple one-figure pricing strategy or would you prefer to see the breakdown of costs? Send your thoughts to [email protected] or Drive, PO Box 257C, City Mail Processing Centre, Vic, 8001.